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This Is Why Microsoft Is So Far Behind Google on the Web

Microsoft has billions of dollars to spend, and more market clout than any software company in the world, thanks to its Windows and Office hegemonies. Isn't it stunning that the company is far behind Google and even Yahoo in the online space? Why is that? It's not for

Microsoft has billions of dollars to spend, and more market clout than any software company in the world, thanks to its Windows and Office hegemonies.

Isn't it stunning that the company is far behind Google and even Yahoo in the online space? Why is that? It's not for lack of resources and talent.

When it has really wanted to, Microsoft has made fine moves in search and advertising. It bid for Yahoo in February 2008, albeit unsuccessfully, and came back around in July 2009 to strike a 10-year search deal that will give it more search clout.

Bing is a great product, it's unfortunately trying to challenge the Windows of the search world in Google, whose 65 percent market share seems indomitable to us as we slide into 2010.

Citing multiple sources privy to the negotiations, Kara Swisher of AllThingsDigital said that not only was Microsoft surprised that Google acquired mobile display ad specialist AdMob, but that:

"Microsoft (MSFT) execs were similarly surprised when news emerged late last week that the search giant was offering more than $500 million for local search site Yelp, and were scrambling to figure out the best response, because both their MSN portal and their new Bing search service have been prominently emphasizing local recently."

OK, before we go any further, it's fair to note that it's not as if Microsoft isn't buying companies. The software power just grabbed Opalis Software a couple weeks ago.

Opalis is a great company for what it does, but the issue is that Opalis does business process automation software. It's far from sexy and it's not relevant to the digital Web space for consumers, where Google is beating the pants off Microsoft and Yahoo, et al.

And that's the problem: Microsoft is buying startups to boost its core IT infrastructure and management product lines when it could be fortifying its online arsenal, which loses something like $1 billion a year for the company.

Collins Stewart analyst Sandeep Aggarwal said in a research note Dec. 23 that Microsoft's laser focus on search means the company is falling short in the mobile Web, display ads and social networking. Aggarwal wrote:

"MSFT has been one of the largest providers of Web mail and IM and still the company could not extend this leadership to social. Not only branding confusion around MSN/Live but also traditional software DNA and lack of urgency contributed to disappointing ramp up of MSFT's non-search Internet business. In '05 MSN accounted for 4% of the total pages viewed on the Internet, same as the top 3 social sites together. Today MSFT remains at 4% while the top 3 social sites account for 14% together."

And people wonder why Microsoft gets whipped in Web services by Google? The only worse offender is Yahoo, which in the past five years has bought a ton of exciting Web services plays -- Flickr, delicious, et al. -- only to shutter some of them. Maven Networks and soon to be killed MyBlogLog leap immediately to mind.

All of these buys are targeted toward improving one aspect or another of Google's online businesses. They have clear purpose: extending Google's lead on the Web.

This brings us back to the Google-Yelp boondoggle. Swisher, again citing several sources, said:

"Yelp had considered Microsoft the only realistic spoiler--with both an interest in and the means for making such a play--even as they have openly scoffed at the idea of ever selling to Microsoft over the hipper and more copacetic Google."

OK, so a successful Web startup is using Microsoft as the brinksmanship pawn in a chess game versus Google, knowing full well that while it might wrangle more money from Microsoft by playing keep away from Google, it would still rather sell to Google at a lower price.

So, again, the Microsoft-is-a-Web-services-laggard meme is rearing its ugly head. That's when you know Microsoft has a, shall we call it, a bit of a reputation issue on the Web.

Swisher wonders:

"In any case, maybe Microsoft will rise to the occasion now, taking advantage of the Silicon Valley-style breakdown between Google and Yelp. But if the company's recent history is any guide, it could just sit with a similarly large pile of cash on the sidelines, mulling its options."

The latter action, or inaction as it were, sounds about right. And that is why Microsoft is Google's Web whipping boy.

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